Question

Bottleneck Profit Product K has a unit contribution margin of $120. Product L has a unit contribution margin of $100. Product K requires five furnace hours, while Product L requires four furnace hours. Determine the unit contribution margin per production bottleneck hour for each product, assuming the furnace is a bottleneck constraint.

Answer 1

Product K= $24 per unit per hour, Product L= $25 per unit per hour.

Explanation:

Given: Product K has a contribution margin of $120, however, it require 5 furnace hour.

Product L has a contribution margin of $100, however, it require 4 furnace hour.

Now, calculating unit contribution margin per production bottleneck hour for each product.

Production bottleneck is a situation in a manufacturing company where demand is higher than production, therefore the unit contribution margin per production bottleneck hour for each product is calculated to know the value of product, so that the product with higher revenue per unit per hour can have higher production.

Formula; Unit contribution margin per production bottleneck=
`\frac{\textrm{Unit contribution margin}}{\textrm{Testing hour per unit}}`

Next, Product K´s unit contribution margin=
`(120)/(5) = $24 per unit per hour`

Product L´s unit contribution margin=
`(100)/(4) = $25 per unit per hour`

∴ Unit contribution margin of product K is $24 per unit per hour, however product L has $25 per unit per hour.